IBD Editorials

Obama Tax Hikes On Rich Would Shrink Economy, Jobs

President Obama answers a question during a news conference in the East Room of the White House on Wednesday. AP View Enlarged Image

President Obama's proposed tax hike on the top 2% of incomes will do next to nothing to close our chronic budget deficits, now running more than $1 trillion a year.

But it will have a major impact on one struggling part of our economy: small business.

In his Wednesday press conference, just before meeting with representatives of the nation's largest businesses, the president again claimed his plan to reduce the deficit and avoid the fiscal cliff would mean that "97% of small businesses are not going to see their taxes go up."

But this is, to put it politely, deceptive. By jacking up taxes on the most successful 3% of small businesses, Obama will destroy hundreds of thousands of jobs, shrink U.S. output and force companies to raise prices.

As usual, the data tell the story.

America has some 34.8 million small businesses, according to a recent Treasury Department study. Sounds like a lot, until you consider that 30 million of them employ no one other than the owner.

Of the remaining 4.8 million that do employ workers, 1.2 million have incomes above $200,000 — where Obama's tax hikes kick in.

Here's the rub: Those 1.2 million small businesses that will be hit by Obama's small-business tax are the nation's most prolific job creators, accounting for 54% of all private-sector positions — or 77.6 million in all.

And while they make up just 3% of all small businesses, they earn 91% — or $341 billion — of all profits reported by the small businesses with workers. "They are the most successful and therefore the biggest job creators," as the Heritage Foundation recently pointed out.

They also pay 44% of all federal business taxes.

Yet, the president's talking point about his tax increases affecting only "the rich" so they pay their "fair share" is repeated by the mainstream media as if it were true.

Maybe the media aren't aware of the Small Business Administration's estimate that, since the 1970s, small businesses have accounted for 66% of all net new jobs in the U.S.

By slamming small businesses, therefore, Obama's "tax on the rich" in fact turns out to be a tax on jobs, pure and simple.

This is confirmed by a study released in July by the consulting giant Ernst & Young.

It found that Obama's planned tax hikes on individuals earning more than $200,000 and families earning more than $250,000 will amount to a devastating tax hike on the small-business sector.

 Shrink capital stock by 1.4% and capital investment by 2.4% over the long run.

 Slash real after-tax income by 1.8%, further reducing Americans' standard of living.

In recent months, Obama has pushed the notion that his tax hikes are really nothing, they merely restore the rates that prevailed under President Clinton. So why worry?

Again, the tax hikes that have been sold as minor tweaks on upper-income earners are far bigger — and far more damaging — than advertised.

They include:

 A 17% increase in the top tax rate on income — to 40.9% from the current 35%.

 A 198% jump in the top rate on dividends — to 44.7% from 15%.

VA 65% boost in the rate on capital gains — to 24.7% from 15%.

These are not the "insignificant" increases we keep hearing about. And Obama's latest proposal for $1.6 trillion in new taxes would only increase the burden.

The only reason this isn't more widely known is that the media are too busy talking about military sexual escapades to tell Americans the truth: that the coming tax hikes won't just hit the rich, but rather will decimate the job-creating small-business sector — the one part of the economy we can least afford to sacrifice in Obama's war on success.

Knowing all this, calls for Republicans to "compromise" on taxes should be taken for what they are: an attempt to get the GOP to collude with Obama and congressional Democrats in the dismantling of our small-business sector.